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Income Tax Appellate Tribunal, JAIPUR BENCHES,”A” JAIPUR
Before: DR. M.L. MEENA, AM & DR. S. SEETHALAKSHMI, JM vk;dj vihy la-@ITA. No. 129/JP/2022
आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”A” JAIPUR MkWa- ,e- ,y- ehuk] ys[kk lnL; ,oa MkWa- ,l- lhrky{eh] U;kf;d lnL; ds le{k BEFORE: DR. M.L. MEENA, AM & DR. S. SEETHALAKSHMI, JM vk;dj vihy la-@ITA. No. 129/JP/2022 fu/kZkj.k o"kZ@Assessment Years : 2017-18 cuke Scholar’s Education Trust of India CIT(Exemption), 602-A, Trimurty Dave Apartment, Vs. Jaipur. Jai Singh Highway Marg, Bani Park, Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAGAS0044P vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri P.C. Parwal (C.A.) jktLo dh vksj ls@ Revenue by : Shri Manoj Mehar (CIT) a lquokbZ dh rkjh[k@ Date of Hearing : 24/05/2022 mn?kks"k.kk dh rkjh[k@Date of Pronouncement : 16/08/2022 vkns'k@ ORDER PER: DR. S. SEETHALAKSHMI, J.M. This is an appeal filed by the assessee directed against the order of the ld. CIT(Exemption), Jaipur dated 30.03.2022 for the Assessment year 2017-18.
2. The assessee raised the following grounds of appeal:- “1. Under the facts and circumstances of the case, order passed by the Ld. CIT is illegal & bad in law and the same be quashed.
2. Under the facts and circumstances of the case, the Ld. CIT has failed to consider the fact that when the issue of withdrawal of exemption u/s 11 is subject matter of appeal before the CIT(A), the power exercised by him u/s 263 for disallowing the donation paid to other society would not fall in the ambit of section 263.
3. Under the facts and circumstances of the case, the finding given by Ld. CIT that once exemption u/s 11 is withdrawn, not disallowing the donation of Rs. 1,83,60,000/- in computing the total income has made the assessment order passed by AO as erroneous & prejudicial to the interest of revenue is ignoring the fact that once exemption u/s 11 is withdrawn, assessee is entitled to depreciation on fixed assets of Rs. 52,04,21,499/- which would be more than the amount of donation and thus no prejudice is caused to the Revenue and consequently holding the order passed by AO as erroneous & prejudicial to the interest of revenue is not as per law.
4. The appellant craves to alter, amend and modify any ground of appeal 3. Necessary cost be awarded to the assessee.”
The brief facts of the case are that the assessee society is registered as a society under Delhi Societies Registration Act, XXI of 1860, vide registration No. S-25554 dated 24.02.1994. The assessee-society is also registered u/s 12AA of the Income Tax Act, 1961 vide letter No. CIT/T&J/u/s 12A(a)/422 dated 09.06.2003 issued by CIT-I, Jaipur. The assessee claimed exemption u/s 11 of the I.T. Act, 1961. The assessee trust is running education institutions in the name of ‘Central Academy’ at various places in Udaipur, Bhilwara, Chittorgarh, Allahabad, Lucknow. The objects of the assessee trust are to arrange, establish and run primary, Middle/ higher secondary school, educational and vocational schools institutions and to provide the general education. The assessee-society filed its return of income for A.Y. 2017- 18declaring total income of Rs. Nil was e-filed on 30.10.2017. The case was selected for complete scrutiny through CASS and e-notice u/s 143(2) of the IT. Act was issued on 09.08.2018 which was duly e-served upon the assessee in time. Further, e-notice u/s 142(1) of the Act along with details query letter was issued on 21.01.2019 and duly e-served upon the assessee.
The AO assessed u/s 143(3) of the IT Act, 1961 at total income of Rs. 32,27,91,710/- charged tax & interest u/s 234A, u/s 234B, u/s 234C and u/s 234D and interest withdrawn u/s 244A as per ITNS 150 issued which is part of this order. Necessary forms and demand notice issued. The assessee has furnished inaccurate particulars of income therefore, penalty proceedings u/s 270A r.w. sec. 274 of the IT Act, 1961, are initiated separately.
Being aggrieved by the AO the assessee preferred an appeal before the ld. CIT(E) and the findings are reproduced as under:-
“11. The assessee in its own submission has admitted that the donation has not been claimed as expenditure rather it is application of income. It is also well settled law that once exemption u/s 11 is withdrawn than only revenue expenditures are allowed while computing the income of assessee. The donation given by the assessee is admittedly not a claimed expenditure. It also cannot be in the nature of revenue expenditure.
Thus the assessing officer while passing the assessment order omitted the vital fact the assessee has not claimed the donation as expenditure accordingly, it is not allowable as expenditure while computing income of assessee under the status of AOP. The action of the AO of not disallowing the donation given is result of wrong appreciation of admitted fact and also wrong interpretation of settled legal principles. This action also resulted in under-assessment of income of the assessee.
Accordingly, the assessment order dated 24.12.2019 passed by AO is held to be erroneous in so far as prejudicial to the interests of the revenue. The issue is partly set aside to the files of AO with direction to consider, in accordance with law, the issue of allowablity of donation of Rs 1,83,60,000/- given to CA Educational Society when the exemption u/s 11 of IT Act has been denied. It is needless to say that the AO will give
proper opportunity of being hard to the assessee before passing ay order. Accordingly, the assessment order dated 24.12.2009 is party set aside.”
Being aggrieved by the assessment order, the assessee preferred an appeal before us. All the grounds raised by the assessee are interrelated and interconnected and relates to challenging the order of the CIT(E) passed by invoking provisions of Section 263 of the Act, therefore, we deem it fit to dispose off all these grounds through the present consolidated order. The Ld AR for the assessee has reiterated its arguments in written submission for all the grounds which are as under:-
“1. The assessee society is registered under Delhi Societies Registration Act XXI, 1860 vide Registration No. S25554 dated 24.02.1994 with the sole object of imparting education under the name and style of “Central Academy & Parents Pride”. In pursuance to its object, the assessee is running 12 schools at various locations i.e. Udaipur, Chittorgarh, Bhilwara, Lucknow and Allahabad where more than 22,000 students are imparted education with more than 1200 staff members. It is also registered u/s 12AA of Income tax Act, 1961 vide order dated 09.06.2003 w.e.f 04.03.2003.
2. The assessee society filed its return of income for the AY under consideration on 30.10.2017 at Nil income (PB 6-9)after claiming exemption u/s 11 of IT Act. During the course of assessment proceedings AO observed that there is violation of section 13 in as much as rent and salary paid to the trustees to the extent of Rs.29,40,000/- is excessive/ unreasonable. Accordingly, he denied exemption u/s 11 thereby taxing the surplus of Rs.31,98,51,710/- declared by the assessee and completed the assessment u/s 143(3) at an income of Rs.32,27,91,710/- (31,98,51,710+29,40,000)Against this order assessee has filed an appeal before Ld. CIT(A) on 13.01.2020 (PB 39-41) which is pending for disposal.
3. Thereafter Ld. CIT issued notice u/s 263 dt. 03.02.2022 (PB 1-2) stating that since assessee has been denied exemption u/s 11, therefore, donation of Rs.1,83,60,000/- given to Children’s Academy Educational Society (hereinafter referred to as CA Educational Society), Jaipur is not an allowable expenditure. Hence, the order passed by AO is erroneous in so far as it is prejudicial to the interest of revenue. In response to same assessee file detailed reply vide letter dt. 22.02.2022 (PB 3-5).
4. The Ld. CIT, however, held that the order passed by AO is erroneous in so far as it is prejudicial to the interest of revenue by giving the following findings:- (i) The withdrawal of exemption u/s 11 of IT Act is subject matter of appeal before the Ld. CIT(A) and is not subject matter of this proceedings. Accordingly reply of assessee on this issue is rejected as irrelevant to the proceedings.
(ii) The issue of non disallowance of donation given by the assessee is not the subject matter of appeal before the CIT(A). Accordingly, the question raised by the assessee on jurisdiction of the undersigned u/s 263 of IT Act is hereby rejected.
(iii) The assessee in its own submission has admitted that the donation has not been claimed as expenditure rather it is application of income. It is well settled law that once exemption u/s 11 is withdrawn, then only revenue expenditures are allowed while computing the income of assessee.Thus the AO while passing the assessment order omitted the vital fact that the assessee has not claimed the donation as expenditure and accordingly, it is not allowable as expenditure while computing income of assessee under the status of AOP. The action of AO of not disallowing the donation given is result of wrong appreciation of admitted fact and also wrong interpretation of settled legal principles.
Accordingly, he set aside the issue to the files of AO with direction to consider, in accordance with law, the issue of allowability of donation of Rs.1,83,60,000/- given to CA Educational Society when the exemption u/s 11 of IT Act has been denied.
Submission:-
At the outset it is submitted that the issue for which proceedings u/s 263 has been initiated by the Ld. CIT has been examined by the AO in detail. In fact the AO vide notice u/s 142(1) dt. 10.10.2019 (PB 23-24)required the assessee to explain how the donation of Rs.1,83,60,000/- given to CA Educational Society, Jaipur is allowable expenditure and vide notice u/s 142(1) dt. 01.11.2019 (PB 28-29) required the assessee to provide return and audited financial statements of CA Educational Society, Jaipur. The detailed explanation in respect of the same was submitted by the assessee vide letter dt. 24.10.2019 (PB 25-27)& 18.11.2019(PB 32-33). The AO after considering the same allowed the assessee’s claim of deduction. Thus when adequate enquiries were made by the AO while passing the assessment order in respect of allowability of deduction of aforesaid donation, his order cannot be said to be erroneous in so far as it is prejudicial to the interest of revenue only for the reason that the Ld. PCIT holds a different view. For this purpose, reliance is placed on the following cases:-
Sir Dorabji Tata Trust Vs. DCIT(E) 188 ITD 38 dt.28.12.2020 (Mum.)(Trib.) The Hon’ble ITAT Mumbai Bench in Para 19-22 held as under:-
“19. The question that we also need to address is as to what is the nature of scope of the provisions of Expln. 2(a) to s. 263 to the effect that an order is deemed to be "erroneous and prejudicial to the interests of the Revenue" when CIT is of the view that "the order is passed without making inquiries or verification which should have been made".
20. Undoubtedly, the expression used in Expln. 2 to s. 263 is "when CIT is of the view," but that does not mean that the view so formed by the CIT is not subject to any judicial scrutiny or that such a view being formed is at the unfettered discretion of the CIT. The formation of his view has to be in a reasonable manner, it must stand the test of judicial scrutiny, and it must have, at its foundation, the inquiries, and verifications expected, in the ordinary course of performance of duties, of a prudent, judicious and responsible public servant-that an AO is expected to be. If we are to proceed on the basis, as is being urged by the learned Departmental Representative and as is canvassed in the impugned order, that once CIT records his view that the order is passed without making inquiries or verifications which should have been made, we cannot question such a view and we must uphold the validity of revision order, for the recording of that view alone, it would result in a situation that the CIT can de facto exercise unfettered powers to subject any order to revision proceedings. To exercise such a revision power, if that proposition is to be upheld, will mean that virtually any order can be subjected to revision proceedings; all that will be necessary is the recording of the CIT's view that "the order is passed without making inquiries or verification which should have been made". Such an approach will be clearly incongruous. The legal position is fairly well settled that when a public authority has the power to do something in aid of enforcement of a right of a citizen, it is imperative upon him to exercise such powers when circumstances so justify or warrant. Even if the words used in the statute are prima facie enabling, the Courts will readily infer a duty to exercise a power which is invested in aid of enforcement of a right—public or private—of a citizen. [ LHirdayNaran vs. ITO (1970) 78 ITR 26 (SC) ]. As a corollary to this legal position, when a public authority has the powers to do something against any person, such an authority cannot exercise that power unless it is demonstrated that the circumstances so justify or warrant. In a democratic welfare state, all the powers vested in the public authorities are for the good of society. A fortiorari, neither can a public authority decline to exercise the powers, to help anyone, when circumstances so justify or warrant, nor can a public authority exercise the powers, to the detriment of anyone, unless circumstances so justify or warrant. What essentially follows is that unless the AO does not conduct, at the stage of passing the order which is subjected to revision proceedings, inquiries and verifications expected, in the ordinary course of performance of duties, of a prudent, judicious and responsible public servant–that an AO is expected to be, CIT cannot legitimately form the view that "the order is passed without making inquiries or verification which should have been made". The true test for finding out whether Expln. 2(a) has been rightly invoked or not is, therefore, not simply existence of the view, as professed by the CIT, about the lack of necessary inquiries and verifications, but an objective finding that the AO has not conducted, at the stage of passing the order which is subjected to revision proceedings, inquiries and verifications expected, in the ordinary course of performance of duties, of a prudent, judicious and responsible public servant that the AO is expected to be.
That brings us to our next question, and that is what a prudent, judicious, and responsible AO is to do in the course of his assessment proceedings. Is he to doubt or test every proposition put forward by the assessee and investigate all the claims made in the IT return as deep as he can ? The answer has to be emphatically in negative because, if he is to do so, the line of demarcation between scrutiny and investigation will get blurred, and, on a more practical note, it will be practically impossible to complete all the assessments allotted to him within no matter how liberal a time-limit is framed. In scrutiny assessment proceedings, all that is required to be done is to examine the IT return and claims made therein as to whether these are prima facie in accordance with the law and where one has any reasons to doubt the correctness of a claim made in the IT return, probe into the matter deeper in detail. He need not look at everything with suspicion and investigate each and every claim made in the IT return; a reasonable prima facie scrutiny of all the claims will be in order, and then take a call, in the light of his expert knowledge and experience, which areas, if at all any, required to be critically examined by a thorough probe. While it is true that an AO is not only an adjudicator but also an investigator and he cannot remain passive in the face of a return which is apparently in order but calls for further inquiry but, as observed by Hon'ble Delhi High Court in the case of Gee Vee Enterprises vs. Addl. CIT &Ors. 1975 CTR (Del) 61 : (1995) 99 ITR 375 (Del) , "it is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. (Emphasis, by underlining, italicised in print, supplied by us). It is, therefore, obvious that when the circumstances are not such as to provoke an inquiry, he need not put every proposition to the test and probe everything stated in the IT return. In a way, his role in the scrutiny assessment proceedings is somewhat akin to a conventional statutory auditor in real-life situations. What Justice Lopes said, in the case of Re Kingston Cotton Mills (1896) 2 Ch.D 279, 288), in respect of the role of an auditor, would equally apply in respect of the role of the AO as well. His lordship had said that an auditor (read AO in the present context)" is not bound to be a detective, or, as was said, to approach his work with suspicion or with a foregone conclusion that there is something wrong. He is a watch-dog, but not a bloodhound". Of course, an AO cannot remain passive on the facts which, in his fair opinion, need to be probed further, but then an AO, unless he has specific reasons to do so after a look at the details, is not required to prove to the hilt everything coming to his notice in the course of the assessment proceedings. When the facts as emerging out of the scrutiny are apparently in order, and no further inquiry is warranted in his bona fide opinion, he need not conduct further inquiries just because it is lawful to make further inquiries in the matter. A degree of reasonable faith in the assessee and not doubting everything coming to the AO's notice in the assessment proceedings cannot be said to be lacking bona fide, and as long as the path adopted by the AO is taken bona fide and he has adopted a course permissible in law, he cannot be faulted-which is a sine qua non for invoking the powers under s.
In the case of Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1 : (2000) 243 ITR 83 (SC) , Hon'ble Supreme Court has held that "Every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interests of the Revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the ITO is unsustainable in law." The test for what is the least expected of a prudent, judicious and responsible AO in the normal course of his assessment work, or what constitutes a permissible course of action for the AO, is not what he should have done in the ideal circumstances, but what an AO, in the course of his performance of his duties as an AO should, as a prudent, judicious or reasonable public servant, reasonably do bona fide in a real-life situation. It is also important to bear in mind the fact that lack of bona fides or unreasonableness in conduct cannot be inferred on mere suspicion; there have to be some strong indicators in direction, or there has to be a specific failure in doing what a prudent, judicious and responsible officer would have done in the normal course of his work in the similar circumstances. On a similar note, a Co-ordinate Bench of the Tribunal, in the case of Narayan T. Rane vs. ITO (2016) 70 taxmann.com 227 (Mumbai) has observed as follows:
Clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made. In our considered view, this provision shall apply, if the order has been passed without making enquiries or verification which a reasonable and prudent officer shall have carried out in such cases, which means that the opinion formed by learned Principal CIT cannot be taken as final one, without scrutinising the nature of enquiry or verification carried out by the AO vis-a-vis its reasonableness in the facts and circumstances of the case. Hence, in our considered view, what is relevant for cl. (a) of Expln. 2 to s. 263 is whether the AO has passed the order after carrying our enquiries or verification, which a reasonable and prudent officer would have claimed out or not. It does not authorise or give unfettered powers to the learned Principal CIT to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made."
Having said that, we may also add that while in a situation in which the necessary inquiries are not conducted or necessary verifications are not done, CIT may indeed have the powers to invoke his powers under s. 263 but that it does not necessarily follow that in all such cases the matters can be remitted back to the assessment stage for such inquiries and verifications. There can be three mutually exclusive situations with regard to exercise of powers under s. 263, r/w Expln. 2(a) thereto, with respect to lack of proper inquiries and verifications. The first situation could be this. Even if necessary inquiries and verifications are not made, the CIT can, based on the material before him, in certain cases straight away come to a conclusion that an addition to income, or disallowance from expenditure or some other adverse inference, is warranted. In such a situation, there will be no point in sending the matter back to the AO for fresh inquiries or verification because an adverse inference against the assessee can be legitimately drawn, based on material on record, by the CIT. In exercise of his powers under s. 263, the CIT may as well direct the AO that related addition to income or disallowance from expenditure be made, or remedial measures are taken. The second category of cases could be when the CIT finds that necessary inquiries are not made or verifications not done, but, based on material on record and in his considered view, even if the necessary inquiries were made or necessary verifications were done, no addition to income or disallowance of expenditure or any other adverse action would have been warranted. Clearly, in such cases, no prejudice is caused to the legitimate interests of the Revenue. No interference will be, as such, justified in such a situation. That leaves us with the third possibility, and that is when the CIT is satisfied that the necessary inquiries are not made and necessary verifications are not done, and that, in the absence of this exercise by the AO, a conclusive finding is not possible one way or the other. That is perhaps the situation in which, in our humble understanding, the CIT, in the exercise of his powers under s. 263, can set aside an order, for lack of proper inquiry or verification, and ask the AO to conduct such inquiries or verifications afresh.”
CIT Vs. Vijay Kumar Koganti (2020) 275 Taxman 394 (Mad.) (HC) Where AO examined issue regarding substantial increase in capital investment reflected by assessee in balance sheet in scrutiny assessment and passed assessment order, in absence of any finding by Pr. Commissioner as to how assessment order was erroneous, Tribunal rightly set aside revisional order passed by Pr. Commissioner on said issue.
CIT Vs. Green Fields Commercial Pvt. Ltd. (2015) 119 DTR 303 (J&K) (HC) AO having issued notices u/s 143(2)/142(1) along with necessary questionnaire to the assessees and the assessees having appeared before the AO and produced the books of accounts and other records besides submitting replies to the questionnaire, it cannot be said that the AO did not give many hearings and thumb nail order was passed or that the record of the assessee was not examined at the time of assessment and therefore, CIT was not justified in exercising revisional power u/s 263, without elucidating as to how the assessment order was erroneous.
It is further submitted that when there is violation of section 13, then the entire surplus cannot be charged to tax but only that part of the income which is not exempt u/s 11 by virtue of section 13(1) shall be charged to tax at MMR. In this connection it is relevant to consider section 164 which deals with the charge of the tax where the shares of the beneficiary are unknown. Sec. 164(2) deals with the charge of tax on the income of the trust which is derived by it from the property held wholly for charitable or religious purpose. The proviso to this section which is relevant for the present purpose reads as under:-
Provided that in a case where the whole or any part of the relevant income is not exempt under section 11 or section 12 by virtue of the provisions contained in clause (c) or clause (d) of sub-section (1) of section 13, tax shall be charged on the relevant income or part of relevant income at the maximum marginal rate From the plain reading of this proviso, it is evident that where the whole or any part of the relevant income is not exempt u/s 11 or 12 because of the provisions of section 13(1)(c) or 13(1)(d), tax is chargeable on the relevant income or part of the relevant income at the maximum marginal rate (MMR). Therefore, in case there is violation of sec.13, the entire income of the trust is not liable to tax at MMR but only the relevant part of the income which violates sec.13 attracts the MMR. The above principal of law is settled by the following decisions:-
(i) DCIT vs. Working Women’s Forum (2015) 235 Taxman 516 (SC) (ii) CIT vs. Fr. Mullers Charitable Institutions (2014) 227 Taxman 369 (SC) (iii) CIT V. Fr. Mullers Charitable Institutions (2014) 363 ITR 230 (Kar.) (iv) Global Institute of Technology Society Vs. DCIT (E) Jaipur] (v) DCIT vs. Mahatma Gandhi Charitable Society for Education and Research ITA No: 359/JP/2019 for AY 2015-16 dated 23.01.2020, ITAT Jaipur Therefore on alleged violation of section 13(1), only the amount of Rs.29,40,000/- can be subjected to MMR and the surplus shown by the assessee is eligible for exemption u/s 11 & u/s 12 of the Act. Thus, when the surplus is eligible for exemption u/s 11, donation of Rs.1,83,60,000/- given by assessee to CA Educational Society, Jaipur is also eligible as application of income for determination of surplus which could beexempt u/s 11.
3. Against the order passed by the AO denying complete exemption u/s 11 ignoring the proviso to section 164(2), assessee has filed an appeal before CIT(A) on 13.01.2020(PB 39-41) and thus the matter is sub-judice before him. Clause (c) of Explanation 1 to section 263(1) provides that where any order passed by AO has been subject matter of appeal, the power of PCIT u/s 263 shall extend only to such matter as has not been considered and decided in appeal. Therefore once the very issue of withdrawal of exemption u/s 11 ignoring proviso to section 164(2) is subject matter of appeal, the donation given by assessee cannot be disallowed by exercising powers u/s 263. For this purpose reliance is placed on the decision of Hon’ble Allahabad High Court in case of CIT Vs. Vam Resorts & Hotels (P) Ltd. (2020) 186 DTR 205/ 418 ITR 723. The relevant Para 25, 26 & 27 reads as under:- 25. As, cl. (c) of Expln. 1 to s. 263 of the Act provides that when an appeal is pending before the CIT, the exercise of jurisdiction under s. 263 of the Act by CIT is barred. Thus, in the present case, the CIT wrongly exercised jurisdiction under s. 263 of the Act by remanding back the matter to assessing authority on 25th March, 2013, while the appeal was decided by CIT(A) on 5th June, 2013. Thus, the order passed by the Tribunal does not suffer from any irregularity and needs no interference.
As far as the word "record" appearing in cl. (b) of Expln. 1 to s. 263 is concerned, it means the record available at the time of examination by the CIT and not any material or record available subsequent to his examination or exercise of power under s. 263. Thus, any order passed by the AO in the assessment proceedings after the remand by the CIT cannot be looked upon and the argument made by the counsel for the Revenue for relying upon the fresh assessment order made on 7th March, 2004 under ss. 263/143(3) of the Act cannot be accepted in view of the above provision of law.
In the present case, the Tribunal had recorded specific finding of fact that the assessing authority had examined each and every aspect of the case on which the remand order hinges, as such the remand order was not sustainable in the eyes of law.
In view of above, the finding of Ld. CIT that the action of withdrawal of exemption is not subject matter of this proceedings and issue of non disallowance of donation is not subject matter of appeal before the CIT(A) is incorrect in as much as the allowance of donation given as application of income is directly linked to exemption u/s 11 which is subject matter of appeal before the CIT(A).
4. It is submitted that if because of denial of exemption u/s 11, the amount of donation of Rs.1,83,60,000/- given by assessee to CA Educational Society, Jaipur is disallowed, then at the same time the assessee shall be allowed depreciation on fixed assets of Rs.52,04,21,499/- (109,25,39,025- 57,21,17,526) (PB 19) u/s 32 in respect of building, plant & machinery and furniture & fixtures in as much as assessee has not claimed any depreciation in his books of accounts and the capital expenditure claimed by assessee as application of income has been disallowed by the AO in computing the total income. It may be noted that as per Explanation 5 to section 32(1), depreciation has to be allowed whether or not assessee has claimed the deduction in computing his total income. If this is considered the total income would be lower than the total income assessed by the AO. The Ld. CIT has not given any finding on this contention of assessee even when it was specifically raised before him and therefore, order passed by AO cannot be said to prejudicial to the interest of revenue.
In view of above, order passed by Ld. CIT u/s 263 is illegal & bad in law and the same be quashed.
On the other hand, the ld CIT-DR has relied on the orders of the authorities below and submitted that the order passed by the ld. CIT(E) is legal and speaking order and fulfills all the ingredients of Section 263 of the Act.The Ld DR submitted that 12AA is registered and in force, where Sec 11 is withdrawn, it is a consequential action.
We have heard both the parties, perused materials available on record and gone through orders of the authorities below. It is an undisputed fact that, the revision proceedings was initiated by issue of SCN dt 03.02.2022 and in response thereto the assessee has filed reply dated 22.02.2022 and reiterated his submission in reply. We have gone through the ITR V and the audited statement of the assesee, where he has given advances and donation during the year under consideration is on record .The CIT(E) erred in passing the order without going through the submission made by the assesee. As per facts of the present case, the ld. CIT(E) noticed that donation of Rs.1,83,60,000/- given to CA Educational Society, Jaipur is allowable expenditure and held that the said issue of allowability of donation 1,83,60,000/- given to CA Educational Society, when the exemption u/s 11 of IT Act has been denied. Therefore, proceedings u/s 263 of the Act were initiated and order was passed against the assessee. It is submitted by the assesee that the donation given by the assesee trust is towards education object and which is been produced before us in PB pages 6 to 9,from the computation of income, it is clear evident the total income from other sources. The Ld AR for the assesee submitted that assesees Trust was established in 1994 with the main objects of providing education. The assesee has registered u/s 12AA of the IT Act on 4.03.2003 and he has claimed exemption u/s 11 of the Act. The Ld AR for the assesee submitted that the AO has made adequate verification while allowing the claim of deduction. We are the of the considered view that the submission made by the AR for assesee that donation made to other charitable trust, who is registered u/s 12AA having similar objects is allowed as application of income to the trust, where the donation made is not claimed as expenditure by the asessee rather it is an application of income . We have perused the memorandum of the trust the donation was in accordance with the objects for providing financial support for educational purpose. It is an evident from the Bank statements and Income and Expenditure Statements that donations of Rs 3,10,70,821/- were received by the assesee from others and donations given by the assesee trust amounting to Rs 1,83,60,000/-. The donations given by the assesee towards the other educational trust was of the same objects assesee trust and it was verified by this bench.
Further this court observed that as per Explanation 5 to section 32(1), depreciation has to be allowed whether or not, assessee has claimed the deduction in computing his total income. If this is considered the total income would be lower than the total income assessed by the AO. Further a charitable or religious trust have to apply 85% of income for the object of the trust so as to qualify for exemption u/s 11 of the Act. Income not exceeding 15% of income is allowed to be accumulated under this section 11(1)(a) of the Act. This accumulation is automatic and does not call for any statutory stipulation. Explanation to section 11(1) provides deemed application and does not call for any statutory stipulation. Explanation to section 11(1) provides deemed application of the income. The said explanation deals with a situation where income applied to charitable or religious purpose falls short of 85% of the income for the reason that the income was not received during that year or for any other reason, the trust have to exercise in writing for accumulation in accordance with Explanation to section 11(1) of the Act. It could be on simply application or it could be exercised by passing accounting entries in the books of account, financial statements and other documents filed along with the return of income. If, combinedly, 85% of income including income applied, deemed to be applied and accumulation not exceeding 15% are less than 85% still the trust is eligible for exemption from income u/s 11(2) of the Act. In other words, it can be said that a chartable or religious trust can claim exemption from income even no income is applied for the object of the trust during the year, the remaining 85% of the income will be allowed exemption u/s 11(2) of the Act provided the statutory requirements for filing Form 10 and investing the amount in specified securities are fulfilled by the assessee.In the present case when the surplus is eligible for exemption u/s 11, donation of Rs.1,83,60,000/- given by assessee to CA Educational Society, Jaipur is also eligible as application of income for determination of surplus which could be exempt u/s 11.
For this purpose, reliance is placed on the following cases:-
Sir Dorabji Tata Trust Vs. DCIT(E) 188 ITD 38 dt.28.12.2020 (Mum.)(Trib.) DCIT vs. Working Women’s Forum (2015) 235 Taxman 516 (SC)
CIT vs. Fr. Mullers Charitable Institutions (2014) 227 Taxman 369 (SC ) CIT V. Fr. Mullers Charitable Institutions (2014) 363 ITR 230 (Kar.)
Global Institute of Technology Society Vs. DCIT (E) Jaipur] DCIT vs. Mahatma Gandhi Charitable Society for Education and Research ITA No: 359/JP/2019 for AY 2015-16 dated 23.01.2020, ITAT Jaipur.
Based on the above references which are delt with similar facts and circumstances of the case when the surplus is eligible for exemption u/s 11, donation of Rs.1,83,60,000/- given by assessee to CA Educational Society, Jaipur is also eligible as application of income for determination of surplus which could be exempt u/s 11. We are of the opinion that the Ld. CIT (E)has not considered the contention of assessee even when it was specifically raised before him and therefore, order passed by AO cannot be said to be prejudicial in the interest of revenue. The order passed by Ld. CIT(E) u/s 263 is illegal & bad